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Supply chain leaders exchange thoughts on preparing for change

Preparing for potential effects is more effective than predicting future events, according to Chris Caplice from the MIT Center for Transportation and Logistics. He was speaking on 19 October 2016, when European supply chain leaders gathered at the Chainalytics 2016 European Executive Roundtable event in Amsterdam. In an afternoon session, the supply chain executives explored the economic, technological and geopolitical trends and challenges that will impact their businesses and strategies for years to come.

By Erik Diks, Managing Director Europe, Chainalytics

In one of the many highlights during the recent Chainalytics roundtable event, Chris Caplice, Executive Director of the MIT Center for Transportation and Logistics, stressed the importance of forecasting and scenario planning in the face of impossible-to-predict macroeconomic and technological forces. These forces, he said, can have a tremendous impact on supply chains. “No one could have predicted Brexit,” Caplice continued. “But it could have a domino effect on other countries.” He advised attendees to stay aware of potential Brexit repercussions, which could range from the need to move production out of the UK to labour migration by industry, and from trade agreement renegotiations to import price fluctuations. He also advised the participants to keep “open minds to new potential solutions and options.” Caplice concluded by cautioning the supply chain leaders that, while scenario planning is a good complement to traditional planning methods, it needs to be incorporated into a formal process. “Preparing for potential effects is more effective than predicting future events,” he said.

Automation set to have a major impact

Erik Diks, Managing Director of Chainalytics Europe, pointed out the differences between European countries’ population growth dynamics and large labour and real-estate cost differentials, all of which significantly impact European and regional transportation costs. Chainalytics’ Freight Market Intelligence Consortium (FMIC) data has clearly shown wide discrepancies in the factors that impact transportation costs – such as the backhaul impact of transporting goods to certain regions (e.g. Poland) resulting in large discounts, as well as the high prices for shipping to remote regions.

Although in the roundtable discussion there was no consensus on precisely when driverless trucks will significantly change our lives and businesses, the participants did agree that – with the technology in place and beta testing already deployed in multiple countries – these new autonomous vehicles are sure to have a major impact. The technology and efficiencies will allow greater long-haul distances as well as better spreading of transportation over time to make better use of road capacities.

Continuing with the theme of automation, the supply chain leaders also discussed how, despite generally low capital investment trends, the increasing use of ever-cheaper robots and ‘cobots’ in manufacturing and warehousing (a trend amplified by low interest rates) will eventually have substantial effect on European supply chains. As these devices and equipment generate more and more big data, that data will need to be successfully converted into information so firms can align their value propositions for competitive advantage.

Fast-changing market dynamics

Marcel van Rossum, Supply Chain Director at Johnson & Johnson, Wouter de Wit, Supply Chain Director EMEA at Driscoll’s, and Jan Fransoo, Professor of Operations Management at Eindhoven University of Technology, took part in a panel discussion to exchange views on major trends impacting the supply chain of the future. It is no secret that some companies are considering re-shoring or near-shoring as part of their manufacturing strategy in response to the steeply rising labour costs in countries such as China. But Jan Fransoo argued that, by shifting part of their manufacturing into lower-cost countries in Europe, companies are not leaving China per se but are rather building in resilience to improve their alignment with fast-changing market dynamics.

Marcel van Rossum identified another very important trend: consumers are adopting new technologies at an ever-faster pace. He illustrated his point with the car, which was introduced around the 1900s but took 75 years to get to an 80 percent adoption rate, and the television, which was introduced in the 1960s but only needed 25 years to achieve the same rate. Today, new technologies like the mobile phone have been adopted within less than ten years. As a consequence it is vital for each business to understand what new technological developments will mean for their futures. Examples of new technologies that will impact all attendees over the next decade were identified as 3D printing, Internet of Things and driverless trucks.

Returning to the topic of Brexit, Wouter de Wit noted that it is not yet seen as a game changer, and said it will only become one when there is a domino effect that impacts other countries or perhaps even results in the collapse of the EU. Most panellists were in agreement that the migration flows caused by geopolitical instability are a key element to be taken into account for future supply chains.

The group concluded with a discussion about the recent EU decisions relating to the corporate tax optimisation activities of multinationals like Apple and Starbucks. Since these activities have a major impact on supply chain dynamics, this development could potentially lead to changes.